Despite Regulatory Pressures, Opportunities in Tobacco Abound

LAS VEGAS — Efforts to increase the legal buying age for tobacco products. Electronic cigarette taxes. Flavor bans. These are just a few issues on the agenda of legislators at every level across the United States.

To date, Hawaii is the only state where consumers must be 21 to purchase tobacco products. But that doesn't mean it's the only place in the nation with a legal buying age higher than the federal age, which currently stands at 18.

Speaking at the 2016 NATO Show in Las Vegas on Wednesday, Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO), noted that 117 municipalities in Massachusetts alone have adopted the age push to 21. The New England state also leads the way in flavor bans — at 43 municipalities. It's no wonder Briant calls Massachusetts a "hotbed" when it comes to tobacco legislation.

Such measures highlight the need for NATO to sharpen its focus on legislative and regulatory issues, bringing an end to its five-year trade show. This year's event marked the last. The association plans to build upon the NATO Local Project, which was founded in 2012 and currently has a three-member staff working directly with retailers to address regulatory issues at the local level.

NATO will also continue teaming up with other associations to tackle the patchwork of tobacco rules across the country. For example, it is a member of the Coalition for Responsible Retailing in Massachusetts, joining with the New England Convenience Store Association, the Retailers Association of Massachusetts, and the New England Service Stations and Auto Repair Association, Briant said.

The association is also taking on the issue of youth tobacco use by trying to bring awareness to social sources for tobacco products. With U.S. retailers passing tobacco inspections more than 90 percent of the time, Briant pointed out that youth access to tobacco products is not stemming from the retail community.

"We're going to get to the cities before they get to us," he said. "Until they deal with social sources, you won't see a decline in youth tobacco use."

As for the Food and Drug Administration (FDA) finalizing its deeming rule for electronic cigarettes, cigars and pipe tobacco, he said the industry must be patient.

"The FDA is doing the right thing. It is working with the OMB [Office of Management and Budget] to get the regulations right," Briant explained.

A Study of Domestic Cigars

In spite of the uncertainty surrounding federal tobacco regulation, the cigar segment is performing well in the convenience channel. During a breakout session at the 2016 NATO Show, Swedish Match Director of Category Management Joe Teller cited that Nielsen large chain convenience data indicates the cigar segment has seen "excellent growth over time." Teller spoke on mass-market cigars during the session.

In fact, six of the top 10 fastest-growing parts of the other tobacco products (OTP) category in terms of dollar sales are cigars, he added.

"Cigars, though a low dollar ring, are kicking in a lot of growth for OTP," Teller said, noting cigars account for 88 percent of unit growth despite representing only 36 percent of dollar growth.

What is driving cigar growth? According to the executive, it is a combination of factors:

• Low retail gas prices;
• No inflation;
• Visible prices;
• Consumer preferred packaging;
• A fresher product;
• Consistency across trade;
• Fast new-item implementation;
• Fast planogram implementation; and
• A nicotine occasion that is not up for grabs.

"Cigars are like the fashion trend business. You have new flavors, limited-time flavors. An item comes out and it's hot, or it's not and it dies off," he explained. "Retail chains are tightening the process to be on top of the cigar [segment]."

Teller encouraged convenience store retailers to double-down on their strengths in this segment rather than trying to fix their weaknesses. "Figure out what your strength is, hit the gas and drive it a lot further," he said.

He also advised retailers to double-face their best-selling cigar items in their best-selling stores; adjust the assortment twice a year; and be first to market with new items.

"Understand your weaknesses, but don't spend a lot of time on them," he said. "Push the gas pedal on the areas where you are strong."

The 2016 NATO Show kicked off April 19 and continues through April 21.